Brief for Respondent in Opposition — London & Overseas Insurance v. Bunge Corp.

.

INDEX

ee cea Ate a _ *. PAGE.

. QUESTION PRESENTED ............. x icver beeen om

Statute INVOLVED ...... Lbisssaxieliwes Sone

Es fee Mee xdingissisie eae tee ‘3

ARGUMENT Savion ees cueeent eee ben keene’ 5

asi a ie euaeae ie eras tiene eee 12

TABLE OF CASES AND OTHER AUTHORITIES

CAsEs: 2

American Sur. Co. v. Diamond, L: N. Y. 2d 594

Tt RRC eet ..

American Sur. Co. r¢ Gerold, 255 App. Div. 285 (st,

Dart TO) s6.s6s0avacnnneanesieeeee eee 5

American Sur. Co. v. Palmer, 240 N. Y. 63 (1925) 5

__Beecher-v. Leavenworth State ‘Bank, 192 F. 2d 10

(9th Cir. 1951), cert. denied, 343 U. S. 953

(RRR? bs 0s sb30500090340300 Re 6°

Behar v. Savard, 2 F. R. D. 367 (S. D. N, Y.

| OR Se Te rey Ere ee i mer 11

~ Casualty Co. v. A. L. Swett Elec. Light & Power

Co., 230 N. Y..199.(1920) ....... papektehese (6

Connecticut | Fire Ins. Co: v. Erie Ry., 73 N. Y. 399° -

f ) BPp. Tea fear e oon ea rary re oe 9

pie v. Phenix Ins. Co., 8 N. Y. 324

Os EY LP Serre: Loren eee ere 6

Glens Falls Ins. Co. v. Wood, 8 N. Y. 24 409 (1960) 5

: — Falls Ind. Co. v. Atlantic Building Corp., 199

F: 2d 60 ~~ Cit. 152) ......5.5 Whkedeowesns 11

Fae

Hartford Acc. & Indem. on v. First Nat’l Bank &

Trust Co., 287 F. 2d 69 (10th Cir. 1961) .......

Heimann v. ‘American Express Co., 53 Misc. 2d 749

(Sup. Ct: N. ¥. Co:.1967) 02... 0c. ceccecvece |

Insurance Co. of N. America v. Morgan Dging &

Bleaching Co., 262 F. 2d 916 (7th Cir. 1959) .

Jersey Ins. Co. v. Parrish, 33 N. Y. S. 2d 440 (Eric

PAGE

7,8

Co. Ct. 1942) ee Sin Dec ebociayhewetour ee

Krause v. Amer. Guar. & Liab. Ins. Co., 22.N. Y. re

2d 147 (1968) ..... Pt terspersheens aeaek q

Liberty Mut. Ins. Co. v. Sheila-Lynn’ Inc:, 185 Misc.

_ 689 (App. - 1945), a ‘d, 270 App.. Div. 835 (1st

Maryland Cas. Co. vYndepenident Metal Piaf. C 0.,

99 F. Supp. 862 (D..Neb. 1951), aff’d, 203 F. 2d:

CP Gls SUE) eve cb rev erevdstveveesse

Mercantile Mut. Ins. Co. v. Calebs, 20 N. Y. 173.

Bais hay ds

~ Meredith v. The Ionian Trader, 279 F. 2d 471 (2d

I eee eel cv echu ku bv an cis kus’

5,11

os Northern-Assur. Co. v. Wolk, 182 Misc. 112 (App. °

T. 1944), aff'd, 269 App. Div. 768 (Ist Dep't

N orthwestern Fire & Marine Ins.-Co. v. Fred T.

Ley & Co., 238 App. Div. 255 (4th Dep't 1933),

a A 264 N. Wee CRED inc cccacceccceces

Ocean Acc. & Guar. Corp. v. Hooker Electrochem-

cal-Co., 240 N. Y. 37.(1925) ..4.....e. sewers

‘Pacific Fire Ins. Co. v. L. A. D.. - Motors Corp,

_ 136 Misc. 594 (City Ct. N. yp GOD si cnsedecs

Phoenix Ins. Co. v. Erie-& W. Transp. Co., 117

U. S. 312 (1886) .... iivekiansiadeaiet eas

Platt v. Richmond, Y. R. & C. R. R., 108 N. Y.

Be CUED bcc cacvapsctovesececestceeqeves

Potomac Ins. Co. v. Stanley, 281 F. 2d 775 (7th

I IE snscespa access eae aes

¢

iil

PAGE

St Paul Fire & Marine Ins. Co. v. United States

_ Lines Co., 258.F. 2d 374 (2d Cir. 1958), cert.

denied, 359 U.S. S10 (BOER) {0 eres eecceeess Se

Scarburgh Company, Inc. v. Employers’ Surplus :

Lines Insurance Company and American Manu- —

~ facturers Mutual Insurance Company v. American

Express. Company, N. Y: L. J., Oct. 4, 1968, p. 17, 5

me oC Oe rr ss ode bees 9

Seligson v. Fidelity & Cas. Co. v. American Ex-

_ press Co., N. Y. L. J., Dec. 2, 1966, p. 16, col.3 ¢

*. (Sup. Ct. N. Y. PS Vsee babes os tneieeas ae

Seligson v. Fidelity & Cas. Co: v. American Ex-

_ press Co., N. Y. L. J., Apr. 5, 1967, p. 18, col. 1

(Sup. Ct. N. ¥. Co.) eer ere es errr e a

Seligson v. Fidelity & Cas. Co. v. American Ex-

press Co., N. Y. L. J., June 26, 1967, p. 15, col. 6

(Sup. Ct. N. Y. Co.) Sa et Pe Lee eee 7-8

. ‘Seligson v. Fidelity & Cas. Co. v. American Ex- |

, press Co., N. Y. L. J., July 18, 1968, p. 2, col. 4.

ae NS Ss RENT ARIE 8

Sexauer & Lemke v. Luke A. Burke & Sons Co., ;

228 N. Y. 341 (198) 0.02.6. c eee eevee eee 6

Silinsky, v. State-Wide Ins. Co.,.30 App. Div. 2d :

Peas 6 eB ree Ry 8

Smith v. Whitmore, 270 F. 24741 (3d Cir. 1959)... 11

Travelers Ins. Co. v. Busy Elec. Co., 294 F. al 139 cA

Se es. CE os 6 Vee ieee bac eecixaeskees ‘11.

United States v. M unsey Trust Co., 332 U. S. 234 ee

Lg aie meena ay CR ENS IEA pee ot He 6

"United States v. Sherwood, 312 U. S. 584 (1941) 11-

Wanamaker. v. Otis Elevator Co., 228 N. Y. 192

, MRD ie TOP DEE DEIR D 6

STATUTES: Te ck a 2:

| Fed. R: Civ. P. 14 (a) ..¥ 00... cee dee ec ee ee 2, 10,11

. Fae) | eeeern Mere Ae 2,11

OTHER-AUTHORITIES: - 3

3 Moore, Federal Practice § 14.03, p. 491 (2d ed. : 6

~* Vance, Insurance ad (3d ed. 1951) . ie eae Meee he

—

be

Py

u

oo ae te THE .

“Supreme Court nf the United States

OctoBER 7, —. ‘

a

~ No. 485

-(% ‘ : 4

: Ps . . ° ¥

1 HE » Lowpon AND OVERSEAS INSURANCE Co., et al,,

Petitioners,

Vv.

«

*. BUNGE CorPORATION and Brooks BANKER, as

Treasurer of AMERICAN ExPRESS ComPaAny,

a 7 Respondents.

* .On PETITION FOR A WRIT OF CERTIORARI TO. THE

UNITED STATES CourT oF APPEALS FOR THE _

3 - SECOND CIRCUIT

- BRIEF FOR RESPONDENT BROOKS BANKER, AS TREAS-

URER OF AMERICAN EXPRESS COMPANY, IN OPPOSITION

QUESTION PRESENTED

‘

“Whether a defendant-insurer wilt has denied liability is

to its insured can, by exercising its procedural right to im- .

', plead a third party, deprive its insured of the power to make

a settlement with and give a general release to such third

party where the insurer has made no payment to its insured

and has not become subrogated to any of its insured’s rights.

<

era Sn ee

Pe eee ce |

: a! pans : on ts

STATUTE INVOLVED

» Although the motion below: was one for summary judg-

~ ment and decided on fundamental principles of substantive '

law, petitioners claim that the statute. involved is the pro- .-

-- cedural impleader rule, Rule 14(a) of the Federal Rules of

Civil Procedure, which they set forth at pages 2-4 of their

‘petition. Respondent submits that Rule 14(a) cannot affect .

the determination of such & motion in in view of 28 x De &

§ 2072, the first two paragraphs of which provide:

“The’Supreme Court shal] have the power to pre-

scribe by general rules, the forms of proces’, writs,

pleadings, and motions, and the practice and proce-

dure-of the district courts and courts of appeals of .

the United States in-civil actions, including admiralty

and maritime cagés, and appeals therein, and the

_pra¢tice and pro¢edure in ptaceedings for thé'review

by the courts, of appeals of«decisions of the Tax

Courts of the United States and for the judicial

review or: enforcement of orders of, administrative

agencies, boards, commissions, and officers,

“Such rules shall not abridge, enlarge or modify

\

2

any sibstantive right and shall preserve the right of ~ “s ;

trial by jury as at common law and as declared by the

Seventh Amendment to the Constitution.” -

‘STATEMENT ‘

This action arises out of the discovery in November, :

1963, of a major fraud, perpetrated by Allied Crude Vegeta-

ble Oil Refining Corporation (“Allied”) and its president,

Anthony DeAngelis (98a)." |

The Allied-DeAngelis fraud. involved improper. re-

~ moval of or failure to deposit commodities certified by: Al- .

Tied to have been. stored with American Express Warehous- :

1All refererices are to” pages of :the appendix in the Court Selinte

-unless otherwase indicated. All emphasis-is supplied —— un-

less — indicated.

| me Fat

||

‘ing: Ltd. (“Limited”)y a wholly-owned subsidiary of pn a

can Express Company (““Amexco”), the theft and forgery

of blank warehouse receipt forms of Limited, and the forg-

ery of delivery orders presented to. Limited. Respondent

Bunge, the plaintiff in this action, is one of many companies

that claimed substantial losses as a _— of Allied’s fraid

(98a). Ves

Immediately after ‘ais diecavedl, of the: Allied-DeAn-

gelis fraud Amexco stated that while it had no legal

. liability in the matter it felt morally bound to do every-

thing it could, consistent with its. overall responsibilities,

to see that the liabilities of its warehousing subsidiaries

_ were satisfied (100a; Heimann v.-American Express

Co., 53 Misc. 2d 749, 753,°767 (Sup. Ct. N.Y. Co.

1967 ))., After long negotiatiohs a comprehensive pro-

posa] was made for the settlement of litigation and poten- .

tial litigation by warehouse receipt claimants calling for

the: payment. by Amexco of approximately . $60,000,000.

The proposal was signed by oe ee 15, 1965

and on October 15, 1965 =i e a binding agreement

on Amexco, Bunge and almost all.claimants under ware-

house receipts issued~or purportedly issued by .Amexc&’s

- pxgsent and former warehousing subsidiaries. The agree-

ment provided that upon consummation of the settlement

Amexco would’ be released from all claims of Bunge or

any pubroges of Bunge based upon the warehouse re-

ceipts.? After the satisfaction -of all conditions precedent,

- the settlement was consummated on June 14, 1967 (101a).

Prior thereto, on November 12, 1964, Bunge com-

- menced the primary action at bar, alleging that certain -

vegetable oil covered by warehouse receipts issued by

‘Limited to Bunge was converted by Allied or others. and

* Excerpts from the specific terms of the release areset forth in

Amexco’s moving affidavit in the District Court (10la) and are

quoted in the District Court’s opinion cee: and pp. 12a-15a.

‘of appendix to petition).

( . : 7 oe

is

4

. 4

that such oil was covered by the insurance contracts issued

by petitioners’ (4a-27a). The irisurers admitted the execu-

tion and delivery of the insurance contracts, denied most

of the acca eae of the complaint and-asserted

a number of affirmative defenses, including the defense

that. the insurance contracts were’ void because of alleged

concealment and nondisclosure of facts by the insured (40a-

46a). The insurers made no Payment to Bunge and have

consistently disclaimed all - liability on the insurance con-

tracts (179a-18la).

On December 21, 1964, the insurers impleaded Amexco.

The sole basis of the insurers’ claim against Amexco is that

’ they will be subrogated to Bunge’s rights agdinst Amexco

in re event they are compelled to pay Bunge (47a-49a,

ae Jue 29) 196 5, Bunge and lei obtained an order

of the District rt staying all proceedings until October

1, 1965, in anticipation of the.settlement becoming a bind-

ing gontract (58a-64a, 744-76a). After tle settlement

agreement was signed, all proceedings in the third-party

action were stayed until further order of the District Court

and that stay remained ° in, effect for approximately two

years. From the inception, jt in granting these stays, the Dis-

trict Court made it clear that once the settlement was

consummated ‘there would be ho subrogation. rights to

which the insurer could succeed, that the third-party action

would have to be dismissed when Bunge’s release became

effective, and that in the meantime the agreement preventing

Bunge from suing Amexco pending: the consummation of

the settlement was binding on the insuers (74a, 89a-94a).

After the settlement was consummated, Amexto moved

for summary judgment on the ground that the potential -

subrogation rights asserted in the third-party complaint had

been extinguished by Bunge’s release of Amexco (95a-

107a). Amexco’s motion was granted on December 14,

>

-§

1967 (199a) * and the District Court also dismissed the

primary action although no formal motion for such relief

hhad been made. The Court of Appeals for the Second

Circuit affirmed! the District Court as to the third-party

action and reversed it as to the primarg action.* On.June 10,

1968, .petitions for rehearing and rehearing en banc were

- denied:

ARGUMENT ,

“1. Petitioners have shown no reason whatsoever why

this Court should grant certiorari. The Court below cor-

‘rectly decided the issue before it on the basis of thoroughly

settled fundamental principles of both state and Federal

law: .

_. & Prior to cayment an insured is the sole owner of .

his claims against third ‘parties and his insurer has no

rights in those claims. Meredith v. Thé Ionian Trader,

279 F. 2d 471, 474 (2d Cir. 1960); Glens Falls Ins. Co.

v..Wood, 8 N.°Y. 2d 409, 412 (1960); American ‘Sur.

Co. v. Diamond, 1 N. Y. 2d 594, 598 (1956); American

Sur. Cory. Palmer, 240 N. Y. 63,.67 (1925); Ame

Sur. Cov? Gerold, 255 eee ‘Div. 285, 287 (1st

1938).

b. Upon payment the insurer has the right ‘ ‘to step

into the shoes of” the insured, but is “subject to all. legal

and equitable defenses which the: third party may have °

’ against the [insured].” Hartford Acc. & Indgm. Co. v.

First Nat'l Bane & Trust Co., 287 F. 2d 69, 72 (10th

~ Cir. 1961); Insurance Co. of N. America v.. Morgan

Dyeing & Bleaching Co., 262 F. 2d 916, 919 (7th Cir.

364 Civ. No; 6440 ) (3. D. N.-Y.). Opinion reproduced in appendix

to the petition, » pp. 8a-2la. .

96

4394 F. 2d

(1968). Opinion aa nae in appendix to the

petition, pp. la-Sa.

Om . .

1959); see also United States v. Munsey Trust Co., 332

U. S. 234, 242 (1947); Phoenix Ins. Co. v. Erie & W.

Transp. Co., 117 U. S, 312, 321-22 (1886); Wanamaker. .

v. Otis Elevator Co., 228 N. Y. 192, 201 (1920); Northern ~

Assur. Co. vy. Wolk, 182 Misc. 112, 114 (App. T. 1944),

aff'd, 269 App. Div. 768-(1st Dep’t 1945). -

The subrogee is “bound by any limitations on its sub-

rogor’s rights, whether they arise by operation of law or by

reason of acts or omissions of the subrogor. Phoenix Ins. Co.

v. Erie & W. Transp. Co., supra; Fayerweather v. Phenix

Ins. Co., 118.N. Y.«324 (1890) ; Platt v. Richmond, ¥. R.

& C. R.R:, 108 N.Y. 358 (1888) ; Mercantile Mut. Ins. Co.

v. Calebs, 20 N. Y. 173 (1859); Northwestern Fire &

Marine Ins. Co. v. Fred T. Ley & Co., 238 App. Div. 255

: (4th Dep’t 1933), aff’d, 264 N. Y. 427 (1934) »Jersey Ins.

- Co, v. Parrish, 33 N. Y. S. 2d 440 (Erie Co. Ct. 1942).

. The “rights of . . . subrogees can rise no higher than

_ their source”, Béecher v. Leavenworth State Bank, 192 F.

2d 10, 14 (9th Cir. 1951), cert. denied, 343 U. S. 953

(1952).° Consequently, when an insured has released his

right _ oy a third party prior to any payment by the

a

5E.g., a subrogee is bound by a Leatute limiting the liability of a

third party to the subrogor [Liberty Mut. Ins. Co. v. Sheila-Lynn,

Inc., 185 Misc. 689 (App. T. 1945), aff'd, 270 App. Div. 835 (1st \_-

Dep't, 1946)]; a subrogee is bound by its subrogor’s contributory

negligence and breach of contract (Bfardiond Cas. Co. y. Independent

-Metal Prods. Co., 99 F. Supp. 862 (D, Neb. 1951) alternative hold-

ing), aff'd, 203 F.2d 838 (8th Cir. 1953) (contributory negligence) ;

* Potomac Ins. Co. v. Stanley, 281 F..2d 775 (7th Cir. 1960) (breach

of contract) ; Casualty Co. v. A. Swett Elec. Light & Power Co.,

230 N.Y. 199 (1920) ] ; a subrogee is bound by a holding that a third.

party is not i to the subrogor [Sexauer & Lemke v. Luke A.

Burke & Sons 228 N. Y. 341 Na (Cardozo, J.); Wanamaker

v. Otis Elevator Co., supra, 228 N. Y. 192]. >

. [A] tort-feasor who in,good faith and with-

- out any knowledge of any payment by the insurer

to the insured does settle with the insured, may set

up this fact.as a bar to the insurer’s action for

subrogation.” Vance, Insurance 794 (3d ed. 1951)

2. Petitioners hate failed to show any conflict with the —

_ substantive law of New York. They completely miscon-

_ ceive the nature of the right of subrogation and ignore the

distinction between cases involving knowledge on the part of

the tortfeasor that an insurer has made payment under

the policy and. cases where the insurer has refused to make

payment. This is demonstrated by Krause v. American : |

Guar. & Liab. Ins. Co., 22 N.Y. 2d 147 (1968), on whith

petitioners rely (petition, pp. 12-13). In that case, wich

also arose out of the Allied-DeAngelis fraud, the New York

Court of Appeals allowed impleader prior to payment by the °

_ insurer, thus bringing the New York procedural law in ~

line with Federal practice; but specifically noted that such

impleader would not deprive the insured of the power to

settle with and release the impleaded party. The court said:

“The insured is free to press on with its claim or,

if no payment has been made by the insurer, settle

as the insured desires.” (22 N. Y: 2d at 154)

Impleader of a third party by an insurer does no more °

than put that party on notice of the existence of insurance

and the insurer’s intention to assert its potential subrogation

rights if it is compelled to make payment to its insured. But

such kn8wledge does not prevent an insured from giving a

valid release to a third party which extinguishes all poten-

tial subrogation rights. Seligsen v. Fidelity & Cas. Co. v.

American Express Co., N. Y. L. J., Dec. 2, 1966, p. 16,

- col. 3; Apr. 5, 1967, p. 18, col. 1; June 26, 1967, p. 15, col.

te

8 é'

* 6; July 18, 1968, p. 2, col. 4 (Sup. Ct. N. Y. Co.)® See

Ocean Acc. & Guar. Corp. v. Hooker Electrochemical Co.,

240 N. Y. 37, 47-48 (1925) ; Pacific Fire Ins. Co. v. L.A.D.

Motors Corp., 136 Misc. 594. (City Ct. N. Y. 1930).

| Petitioners’ reliance on a dictum in Silinsky v. State-

Wide Ins. Co., 30 App. Div. 2d¢4 (2d Dep’t 1968), is

misplaced. That dictum is not supported by the cases

cited by the Appellate Division which all involved situations

where the tortfeasor knew prior to settlement that the in-

surer had made actual payment. Furthermore the dictum

is in direct conflict with the earlier decisions of New York’s

highest court cited at pages 5-6, supra, andthe subsequent .

decision by, that court in Krause v. American Guar. & Liab.

Ins. Co., Supra, where as noted the court specifically stated

that despite impleader by the insurer—and thus knowl-

edge on the part of the réleasee of the existence of insur-

ance—the insured remained free to “settle as the insured

desires”. (See p. 7, supra)

Wete the law otherwise, an alleged tortfeasor would .

‘ remain exposed to further claims with. respect to the same

subject matter by.subrogees of the injured.party and

‘would hardly be likely to make a substantial settlement.

The insured would thus be deprived of an opportunity to

promptly recoup at least part of his losses. This cannot

of”?

-be the law, nor is it.’ Cia

oe“

® These New York decisions by two different justices of the

New York Supreme Court also involved the Allied-DeAngelis fraud

‘ and rejected contentions of an insurer that it was not bound by the |

settlement agreement between its insured. and Amexco.

™ Indeed, the law so strongly protects a third party who settles

with an insured that, even where the insurer’s subrogation rights

have vested by payment to the insured, the third party, who there-

after settles in good faith without knowledge of the fact or reason

to suspect that the insurer has'made payment, is protected from suit

by the insurer. Ocean Acc. & Guar. Corp. v. Hooker Electrochemi-

cal Co:, supra, 240 N. Y. at 47.

“9

- Petitioners also rely upon Connecticut Fire Ins. Co. v-

Erie Ry., 73 N. Y. 399 (1878) to show a conflict with the

‘substantive law of New York. That case however, does

not support their argument. It involved a settlenient by,

an insured and a release. which ‘specifically preserved “the

insured’s’ rights against his insurer. The court held that

this clause in the release“‘was in the nature of a proviso

~ or exception from the general purview of the release” (73°

N. Y. at 404) and that all that was intended to’be settled

was the wrongdoer’s liability to the insured in excess of

the insured’s coverage. By contrast, the case at bar in-

volves a general and unqualified release and it is undis-

puted that the release was intended to extinguish all of

Bunge’s claims against Amexco. In fact, the settlement

agreement provided .an option to an acceptor to -except

from the release rights which an insurer might derive by

way of subrogation upon payment. Bunge did not ex-

ercise that option. The findings of the District Court on

this point, which were affirmed by the Court of Appeals,

_ are not challenged (206a-208a, pp. 14a-16a of appendix to

petition).

'_ The precise issue here involved, on identical facts, was

decided by the New York Supreme Court on September 30,

1968, in. Scarburgh Company, Inc. v. Employers’ Surplus

Lines Insurance © ompany and American Manufacturers

Mutual Insurance Company v. American Express Company,

N. Y. L. J., Oct. 4, 1968, p. 17, col. 3. In that action an-

other acceptor of the Amexco settlement had brought an

action ‘against its insurance carriers which, in turn, had

- impleaded Amexco. The court pointed out that Scarburgh

accepted the settlement without exercising the option to

preserve any potential-rights of its insurers against Amexco

and that-Scarburgh’s intent to give a complete release to

Amexco extinguishing such rights was clear. The court

_ obviously found the rationale and decision of the Court of

Appeals for the Second Circuit in the case at bar entirely

in accord with the substantive law of ‘New York, quoted

from it with approval, and said:

“‘When an insurance cémpany repudiates liabil-

ity, it breaches ‘its contract of i insurance and thereby

frees the insured to press on with its claim. If no

_ ayment has been made by its insurer, the assured

aa

3.

may settle with the third party as it desires (Matter

of Vanguard Ins. Co., 18 N. Y. 2d 376).

* x: Ok .

“By refusing to make payment upon a contract ©

of indemnity the insurer has not perfected its right

of subrogation. Subrogation is not perfected until

after payment, whereupon the insurer succeeds to

whatever rights then had by its insured (Comm.

Fire Ins. Co. v. Erie Railway Co., 73 N. Y. 399).

(Emphasis in original)

* * * ,

ee

“Becatse the third-party complaints against

Amexco by each of the: insurance companies are

predicated upon claims of. subrogation the motions

made by Amexco for summary judgment dismissing —

‘the third-party complaints are granted for the rea-

‘son that the court finds that the rights to subroga-

tion have been extinguished by the release’ provision

between Scarburgh and Amexco.”

Petitioners’ have failed to show any conflict with

decisions of the’ Second or other Circuit’. .They argue that

because they were allowed to implead Amexco under Rule

14(a) of the Rules of Civil Procedure, Bunge could not givé

‘Amexco a full release because it could not destroy potential

11

subrogation rights. There is no merit to this contention.

While Rule 14(2) may accelerate the time when a potential

right may be asserted for procedural purposes, it is well

settled that {t does not in any way affect substantive rights _

or create a substantive right where none exists. 28 U. S. C.

§ 2072 clearly provides that the rules of civil procedure

“shall not abridge, enlarge or modify any substantive

right.” United States v. Sherwood, 312 U.S. 584, 590

(1941) ; Travelers Ins. Co. ¥. Busy Elec. Co., 294 F. 2d 139, °

_ 146 (Sth Cir. 1961) ; Smith vy. Whitmore, 270 F, 2d 741,

745 (3d Cir. 1959); Behar v. Savard, 21-F. R. D. 367,

369 (S. D: N. Y. 1958) »3 Moore, Federal Practice § 14.03,

| p--491 (2d ed.). Impleader therefore cannot deprive the

sole owner of a claim of the power to release it.

. ' Petitioners_rely on Glens Falls Ind. Co. v. A tlantic

Building Corp:; 199 F. 2d 60. (4th Cir. 1952), and St. Paul

‘Fire & Marine Ins. Co. v. United States Lines Co., 258 F.

2d 374 (2d Cir. 1958), cert. denied, 359 U. S. 910 (1959)

in support of their claim of conflict between-Circuit Court

decisions. All that these cases hold is that prior to payment

an insurer may implead an alleged tortfeasor. They. do not

suggest in any way that impleader of a third party prevents .

‘an insured from completely releasing that third party. In

Meredith v. The Ionian Trader, supra, 279 F. 2d at 475,

the Second Circuit - specifically pointed out that its prior de-

cision in St. Paul did not mean that substantive rights of -

subrogation had been changed by the impleader rule.

In sum, petitioners have failed to show any conflict be-

tween Circuits or with the substantive law of New York and

_it is clear that none exists. The decision below is in accord

with the fundamental principle of law that until an insurer .

makes payment, its. insured remains the sole owner of any

claim against a third party and has the right to release that

claim and ey extinguish potential subrogation rights.

12

CONCLUSION

- FOR THE FOREGOING REASONS, IT IS RESPECTFULLY

SUBMITTED THAT THE PETITION FOR A WRIT OF CERTI-

_ ORARI SHOULD BE DENIED.

Respectfully submitted,

_ .Peter H. KaMINER,

Attorney for Respondent,

American Express Company,

40 Wall Street,

New York, New York 10005 .

EpwIn J. WESELY,

Marie L. McCann,. |

| Of Counsel.

Dated: New York/New York

October 4; 1968

o. . i"